Exam #2 Review

In the exhibit below depicts the short run cost curves of a perfectly competitive firm. At output 45, Average Fixed Cost (AFC) is approximately a. 1 b. 3 c. 4 d. 45

a. 1

The monopolist in Exhibit 9-5 will produce where a. MR = 0 b. MR = MC c. MC < MR d. MC = ATC e. D = MC

b. MR = MC

With price sensitivity in mind, who would you expect to be more likely to purchase food at the movie concession counter?Click to view larger image. a. those who attend matinees b. those who attend evening movie showings c. those who attend matinees and those who attend evening movie showings are equally likely to purchase concessions d. it is not possible to determine the answer to the question with the information given

b. those who attend evening movie showings

Which of the following types of firm most closely fits the description of a competitive firm? a. new car manufacturers: General Motors, Ford, Chrysler, Toyota, etc. b. local grocery stores c. corn farmers d. the local electric utility

c. corn farmers

Marginal Cost

is the change in variable cost divided by the number of additional pizzas produced.

variable costs examples

labor and raw materials

The difference between the willingness to pay for a good and the price that is paid to get it is a.welfare economics. b.willingness to sell. c.producer surplus. d. consumer surplus.

d. consumer surplus

If competitive firms experience a loss, over the long run there will be a(n) a. increase in market supply to reduce the market price b. increase in market supply to increase the market price c. decrease in market supply to reduce the market price d. decrease in market supply to increase the market price

d. decrease in market supply to increase the market price

Price discrimination exists when a firm sells the same good at __________________ to different groups of customers. a. more than two prices b. more than three prices c. the same price d. more than one price

d. more than one price

In a perfectly competitive market, the price of the product is a. independently set by each competing firm b. set by the market leader and then copied by other firms c. jointly set after a meeting of all firms in the market d. set by market supply and demand

d. set by market supply and demand

Firms producing an identical product in a perfectly competitive market are producing at a quantity that maximizes profit. The current market price is $4.50 per unit, and the firms are producing at a long-run average cost of $3.50 per unit. Firms in this market experience a. a profit b. a loss and leave the market c. zero profit d. a loss and stay in business

a. a profit

Which of the following is an example of price discrimination? a. airlines charging lower prices for those who book in advance b. $6 foot-long subs at Subway c. the McPick 2 menu at McDonald's d. Little Roman's pizza menu with the following prices: cheese pizza = $8, supreme = $11

a. airlines charging lower prices for those who book in advance

The marginal cost curve a. intersects the ATC at its minimum point. b. intersects the AFC at its minimum point. c. always declines. d. is always S-shaped.

a. intersects the ATC at its minimum point.

Those who see the matinee have a demand for movies that is on average _____________ elastic than those who see the evening show. a. more b. less c. equally d. either more or less depending on the characteristics of the consumer

a. more

A firm is experiencing a loss of $5,000 per year when operating. The firm has fixed costs of $8,000 per year. The firm should _________ in the short run and should _________ in the long run. a. operate; shut down b. shut down; operate c. operate; operate d. shut down; shut down

a. operate; shut down

At many amusement parks, customers who enter the park after 4 p.m. receive a steep discount on the price they pay. This is a type of price discrimination because the amusement park charges a lower price to a. people who have a more elastic demand for amusement parks. b. people with 9-to-5 jobs. c. students who can't visit until after 4 p.m. anyway. d. people who have a more inelastic demand for amusement parks.

a. people who have a more elastic demand for amusement parks.

In 1911, the U.S. government sued Standard Oil, a U.S. company, for violation of antitrust laws. The company broke up into 34 smaller companies. This is an example of a. promoting competition b. reducing trade barriers. c. regulating currency markets. d. government failure.

a. promoting competition

The price of a competitive firm's product is $50 per unit. The firm currently has marginal cost equal to $40. To maximize profits this firm a. should increase its output b. should reduce its output c. should keep its output the same d. needs more information to determine if it should adjust its output

a. should increase its output

Which of the following statements is true? a.Perfect price discrimination can never lead to the most socially desirable level of output since it involves monopoly power. b.Even though the pharmaceutical industry cannot stop other countries from selling lower price drugs to U.S. residents, the industry's efforts to price-discriminate are profitable. c. Prestigious theaters that can sell tickets for operas for $500 should never sell tickets at $20 prices. d. You should never tip a host in a restaurant in order to avoid a long wait.

a.Perfect price discrimination can never lead to the most socially desirable level of output since it involves monopoly power.

A pizza business has the cost structure described below. The firm's fixed costs are $20 per day. What are the firm's marginal costs at an output of 35 pizzas? a. $0.57 b. $4.00 c. $9.20 d. $230.00

b. $4.00

Assume that a monopolist faces the demand schedule given below, and a constant marginal cost of $2 for each unit of output. To maximize profits, this monopolist would produce ____ units of output and charge a price of ____ per unit. a. 1 unit; $8 b. 2 units; $5 c. 3 units; $3 d. 4 units; $1

b. 2 units; $5

Which of the following is true with regard to monopoly? a. There is no deadweight loss associated with a monopoly outcome. b. A monopolist charges a price where marginal cost is equal to marginal revenue. c. A monopolist would never engage in rent seeking. d. Government oversight of monopolies should never be encouraged.

b. A monopolist charges a price where marginal cost is equal to marginal revenue.

As a waiter you earn $60,000 per year, including tips. Someone offers you a new job as an economic consultant, which pays $100,000 per year. In order to be a consultant, you'll need to rent an office and purchase supplies and new computer equipment. We can conclude which of the following? a. If the explicit cost for the consulting job is $30,000 per year, your accounting profit is equal to $30,000. b. If the explicit cost for the consulting job is $25,000 per year, your economic profit is equal to $15,000. c. If the explicit cost for the consulting job is $20,000 per year, your economic profit is equal to $80,000. d. If the explicit cost for the consulting job is $20,000 per year, your accounting profit is equal to $140,000.

b. If the explicit cost for the consulting job is $25,000 per year, your economic profit is equal to $15,000.

In the exhibit below depicts the short run cost curves of a perfectly competitive firm. The shut down point is represented by the a. intersection of MC and AFC b. Intersection of MC and AVC c. intersection of MC and ATC d. minimum point of MC

b. Intersection of MC and AVC

In the graph below, what price will a monopolist charge? a. P1 b. P2 c. P3 d. P4

b. P2

Compared to perfect competition, monopolies charge a. a lower price. b. a higher price. c. the same price. d. a higher or lower price, depending on the monopoly.

b. a higher price

The cookie company in the mall hires workers to produce cookies. The workers are paid $75 per day, and the cost of renting the space in the mall is $250 per day. If two workers are hired, the variable costs are a. $75 b. $100 c. $150 d. $200

c. 150

Assume that a monopolist faces the demand schedule given in the table below and a constant marginal cost of $50 for each unit of output. To maximize profits, the monopolist would produce ____ units of output at a price of ____ per unit. a. 5,000; $50 b. 4,000; $60 c. 3,000; $70 d. 2,000; $80

c. 3.000; $70

Which region or regions represent the producer surplus in the monopoly outcome? a. A + B + C b. B + E + F c. B + C + D d. C + F + D

c. B + C + D

Based on the graph below, how does the monopolist's profit-maximizing price and output compare to the efficient price and output? a. The monopolist charges less and produces less. b. The monopolist charges more and produces more. c. The monopolist charges more and produces less. d. The monopolist charges less and produces more

c. The monopolist charges more and produces less.

Dasenbrock and Gauss farms are able to achieve huge cost savings as they increase their acreage. This would be referred to in economics as a. achieving diseconomies of scale. b. achieving deadweight loss. c. achieving economies of scale. d. achieving diminishing returns.

c. achieving economies of scale

Suppose that at the current level of production, the price of a monopolist's product is equal to $15 per unit. Marginal revenue is equal to $10 per unit, and marginal cost is equal to $15 per unit. This monopoly a. has maximized profit and should keep production the same. b. can increase its profit by producing and selling more units of its product. c. can increase its profit by producing and selling fewer units of its product. d. should shut down.

c. can increase its profit by producing and selling fewer units of its product.

In order to sell more units, a monopolist must lower its prices. As shown in the table below, total revenue will initially ____________ and then ______________. a. increase, continue to increase b. decrease, continue to decrease c. increase, decrease d. decrease, increase

c. increase, decrease

In the exhibit below depicts the short run cost curves of a perfectly competitive firm. The break even point is represented by the a. intersection of MC and AFC b. intersection of MC and AVC c. intersection of MC and ATC d. minimum point of MC

c. intersection of MC and ATC

Because the demand for the matinee showing is ________________ elastic than the demand for the evening showing, the demand curve for matinees is _______________ than the demand for evening movie showings. a. less, steeper b. less, flatter c. more, flatter d. more, steeper

c. more, flatter

Monopolies choose their profit maximizing a. output level. b. price. c. output level and price. d. neither output level nor price.

c. output level and price

Laronda went into the business of producing and selling greeting cards. For this business, which of the following is likely to be a fixed cost? a. paper costs b. labor costs c. the 6-month lease for the factory d. long distance telephone costs

c. the 6 month lease for the factory

Which of the following statements is true? a. Prestigious theaters that can sell tickets for operas for $500 should never sell tickets at $20 prices. b. You should never tip a host in a restaurant in order to avoid a long wait. c.Even though the pharmaceutical industry cannot stop other countries from selling lower price drugs to U.S. residents, the industry's efforts to price-discriminate are profitable. d.Perfect price discrimination can never lead to the most socially desirable level of output since it involves monopoly power.

c.Even though the pharmaceutical industry cannot stop other countries from selling lower price drugs to U.S. residents, the industry's efforts to price-discriminate are profitable.

Using the information in the figure and table below, which of the following statements is true? a. Consumers are just as well off in all three markets. b. Producers are just as well off in all three markets. c. Deadweight loss is the same in all three markets. d. Total welfare is lower in a monopoly that charges a single price than the monopoly in either perfect competition or perfect price discrimination.

d. Total welfare is lower in a monopoly that charges a single price than the monopoly in either perfect competition or perfect price discrimination.

Which of the following is an example of price discrimination? a. $6 foot-long subs at Subway b. Little Roman's pizza menu with the following prices: cheese pizza = $8, supreme = $11 c. the McPick 2 menu at McDonald's d. airlines charging lower prices for those who book in advance

d. airlines charging lower prices for those who book in advance

Suppose an unregulated natural monopoly becomes regulated using marginal-cost pricing. As a result, the firm's profits would a. increase substantially. b. decrease substantially, but remain positive. c. be brought down to zero. d. become negative.

d. become negative.

Which of the following conditions must be met for price discrimination to occur? a. distinguishing groups of buyers with different price elasticities of demand b. preventing resale c. differentiating the price elasticity of demand of every customer d. both distinguishing groups of buyers with different price elasticities of demand and preventing resale

d. both distinguishing groups of buyers with different price elasticities of demand and preventing resale

Using the table shown, if the theater charges two prices (based on age), it should choose a higher price of ____________ and a lower price of ____________. a. $11; $6 b. $10; $6 c. $9; $7 d. $8; $6

b. $10; $6

Fixed costs (overhead)

lease and rental payments insurance intrest payments

A pizza business has the cost structure described below. The firm's fixed costs are $20 per day. What are the firm's average fixed costs at an output of five pizzas? a. 4 b. 20 c. 80 d. 100

a. 4

Which of the following statements is true? a.In perfect price discrimination, the firm is able to convert the entire area of consumer surplus that existed under perfect competition into producer surplus. b. There is no producer surplus associated with perfect price discrimination. c. There is a deadweight loss associated with perfect price discrimination. d. For a monopoly there is an increase in total welfare for society compared to perfect competition.

a. In perfect price discrimination, the firm is able to convert the entire area of consumer surplus that existed under perfect competition into producer surplus.

A firm carries out price discrimination when it charges a. a lower price to consumers whose demand is more elastic. b. the same price to all of their consumers. c. a higher price to consumers whose demand is more elastic. d. a higher price when their marginal cost is lower.

a. a lower price to consumers whose demand is more elastic.

A local snow cone business sells snow cones in one size for $5. It has the following cost and output structure per hour.Click to view larger image.To maximize profit, the firm should produce how many snow cones per hour? a. 25 b. 30 c. 35 d. 40

d. 40

The cookie company in the mall hires workers to produce cookies. The workers are paid $75 per day, and the cost of renting the space in the mall is $250 per day. The total costs when three workers are hired is a. $75. b. $100. c. $150. d. $475.

d. 475

which areas represent producer surplus under perfect price discrimination? a. A + C b. B c. C d. A + B + C

d. A + B + C

Which region or regions represent the total surplus in the monopoly outcome?.. a. A + B + C b. B + E + F + C c. B + C + D d. A + B + C + D

d. A + B + C + D

Profits when a competitive firm shuts down are -$7,250 and profits are -$250 when the firm continues to produce. This firm will minimize losses by a.shutting down b.continuing to produce c.either shutting down or continuing to produce d.decreasing production

b. continuing to produce

Which of the following is an example of price discrimination at the movies? a. showing new releases b. discounted matinee tickets c. movie genre d. IMAX surcharge

b. discounted matinee tickets

A natural monopoly exists when a single seller experiences ____________ average total costs than any potential competitor. a. higher b. lower c. equal d. sometimes higher and sometimes lower

b. lower

The local ice cream shop is trying to figure out how many workers to hire, and part of the decision will be based on the marginal product of labor. The following table shows a short-run production function for quantity of ice cream tubs produced. Diminishing marginal returns begins after hiring which worker? a. first b. second c. third d. fourth

b. second

If the average total costs is falling, a. the marginal cost curve must be above the average total cost curve. b. the marginal cost curve must be below the average total cost curve. c. the MC curve is rising. d. the MC curve is horizontal (neither rising nor falling).

b. the marginal cost curve must be below the average total cost curve.

A semiprofessional baseball team near your town plays two home games each month at the local baseball park. They split the concessions 50/50 with the city, but keep revenue from ticket sales for themselves. The city charges the team $100 each month for the three-month season. The team pays the players and manager a total of $1,000 a month. The team charges $10 for each ticket, and the average customer spends $7 at the concession stand. Attendance averages 30 people at each home game.In order to break even, how many tickets does the team need to sell for each game? a. 33 b. 37 c. 41 d. 45

c. 41

Billy Bob runs a seafood restaurant. Last year he earned $50,000 in revenue. He had explicit costs of $20,000. Billy Bob could have made $30,000 working for the county and could have received an additional $20,000 if he rented out his building and equipment. Calculate Billy Bob's implicit costs. a. $20,000 b. $30,000 c. $50,000 d. $70,000

c. 50000

A competitive firm maximizes profit at an output level of 500 units, market price is $24, and ATC is $24.50. At what range of AVC values for an output level of 500 would the firm choose not to shut down? a. AVC > $24 b. AVC = $24 c. AVC < $24 d. cannot be determined from the given information

c. AVC < $24

Perfect Flights, a commercial airline, has a monopoly on the route it flies but decides to charge each passenger a price exactly equal to what the passenger is willing to pay. At $500 no one is willing to fly. At a price of $300 there are 100 passengers willing to fly, and at a price of $100 there are 200 customers willing to fly. The marginal cost of a passenger on its flight is constant for any number of passengers at $100. Calculate profits for Perfect Flights. a. $20,000 b. $25,000 c. $30,000 d. $40,000

d. $40,000

In this large business, we see that there are a total of ___ supervisors and managers (including the owner). a. 12 b. 16 c. 18 d. 19

d. 19